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Phishing For Phools

Thesis: "Insofar as we have any weakness in knowing what we really want, and also insofar as such a weakness can be profitably generated and primed, markets will seize the opportunity to take us in on those weaknesses."

Phishing: "It is about getting people to do things that are in the interest of the phisherman, but not in the interest of the target."

Phool is "someone who, for whatever reason, is successfully phished."

"There are two kinds of phool: psychological and informational. - Psychological phools, in turn, come in two types. In one case, the emotions of a psychological phool override the dictates of his common sense. In the other case, cognitive biases, which are like optical illusions, lead him to misinterpret reality, and he acts on the basis of that misinterpretation." - "Information phools act on information that is intentionally crafted to mislead them."

How can we be sure we are being phooled? By gauging the state of "NO-ONE-COULD-POSSIBLY-WANTs": - personal financial security - the stability of the macroeconomy (the economy as a whole) - our health - the quality of government

Phishing Strategies

  1. Ego: "the makers of cake mixes appealed to housewives’ desire for creativity by unnecessarily requiring the addition of an egg."

  2. Cialdini: "we are phishable because we want to:

    • reciprocate gifts and favors;
    • because we want to be nice to people we like;
    • because we do not want to disobey authority;
    • because we tend to follow others in deciding how to behave;
    • because we want our decisions to be internally consistent; and
    • because we are averse to taking losses."
  3. Prolong the route to the essential + make it easier to make on-the-spur-of-the-moment purchases: "...the eggs and the milk are strategically in the back of the supermarket; they are the most common purchase; and, figuratively, you have to go through the whole store to get them, being reminded of the other needs ...And when you get back to the checkout counter—waiting there—it is no coincidence that the candy and the magazines are there for you (and the kids)."

  4. Reputation mining:

    • Trade on reputation
    • If I have a reputation of quality, I can sell you low quality for a higher price.
    • application = ratings agencies and fin. crash
    • carl shapiro/1982/it would lead to low-quality products being ubiqutous in a free market
      • post-discovery adjustment
      • "When we listen to a news program (read the newspaper, etc.), we tend to take for granted that we are hearing (reading) the “news”: whatever that might be. Someplace in the back of our minds we have the notion that editors have culled the stories that best represent “the news” according to the “real” interests of their viewers. They are acting as our “news fiduciaries.”
  5. Complicate the unsavory

    • Derivatives, legislation
  6. Mine motivated scrutiny: during fin. heyday, people were loathe to question the goose laying the golden egg. Great example of nonsense analysis by Cassano.

  7. Develop disciplines devoted to specializing in unethical stuff with framing of ethics---due process, customer success: "Just as lawyers are supposed to defend their clients, even if guilty, advertisers are supposed to enhance the sales of the companies that hire them, even if those sales reduce customers’ well-being."

  8. "Reason why" advertising:

    • Tell people why they ought to buy X even if reasons are vacuous (you are doing obvious things done by everyone but good. For selling beer, explain it is produced in sterile conditions, uses "careful[ly chosen] ... ingredients", ..., "contains the pain reliever most recommended by doctors", etc.), misleading, or appeal to their first order pref.
  9. Make a misleading +ve claim:

    • "One of its soaps, at the time with lagging sales, was a combination of palm oil and olive oil: Palmolive." ---> branded as beauty soap
    • “At 60 miles an hour the loudest noise in this new Rolls-Royce comes from the electric clock."
  10. Associate +ve things with whatever you are selling:

    • good looking people
    • well behaved children
    • images of farm, etc.
  11. Learn from data on what works: "But Palmolive also got another, subtler dividend from the coupons. By affixing coupons to their advertisements, Lasker and Hopkins could tell which ads worked; which ones didn’t. Just count the coupons that were returned."

  12. Auto Dealer Phishing Tools:

    • Extras: “You just have to sell them on the benefit of those things anyway and turn a blind eye to the high probability that they won’t need these things later on.”

    • Trade-in: “Don’t, don’t, don’t mention that you have a trade-in until after you’ve negotiated a price.

    • Focus attention on X: "For example, if the salesman is able to focus the buyer’s attention on the monthly payment, then the buyer will fail to notice the length of the contract. But each month of extra payments is then a month of pure gravy to the dealer."

  13. Lie

  14. Repeat the Lie: “I have not passed through life,” he wrote, “without [observing] that assertions, however broad and unfounded, if permitted to pass into the mind of the hearer, will frequently be received with the acquiescence due only to established truth.”

  15. Mislead without lying:

    • Make convenient unstated assumptions when making claims
  16. Credit Card than Cash: "Richard Feinberg found that tips left by those paying by credit card were 13 percent larger than those paying w/ cash." In exp., willingness to spend much higher w/ cc. Add'l evidence from Prelec and Simester ---Celtics tickets got more than double in the credit-card condition; the Red Sox tickets got more than 75 percent extra; the banners got a mere 60 percent extra.

  17. Subscription than pay per visit:

    From DellaVigna and Malmendier--- Gyms: "80 percent ... would [pay] less by the visit [than a monthly subscription]. Furthermore, the losses from this wrong choice were significant: $600 per year, out of average payments of $1,400."

    "Additionally, to add insult to injury, the health clubs put roadblocks in the way of cancellation. Of the 83 clubs offering automatic monthly renewal in the DellaVigna-Malmendier sample, all accepted cancellation by personal appearance; but only 7 would accept cancellation by phone. Only 54 would accept a letter; and, of these, 25 required it to be notarized."

  18. Selective Information:

    • "Publicly, proclaim policies that will appeal to the typical voter on issues that are salient to her, and where she will be well informed. But on other issues, where the typical voter is ill informed, but where potential campaign donors are well informed, take the stance that appeals to donors. Use the contributions from these “special-interest groups” for campaigning that increases popularity among the regular run of voters, who are more likely to vote for someone who “mows their lawn on TV."
  19. Exploit self-interest:

    • Authors of the Vioxx study, journals publishing pharma sponsored papers, etc.
    • Authors who want to peddle their theories. Clarence Little/Tobacco.
  20. If doing an experiment, use cheeky controls: naproxen for Vioxx as naproxen w/ history of gastro. issues

  21. Come up with a story

  22. Attributes of products that are hard to 'see': Gabaix and Laibson. Ink cartridges ~ 2/3rd of the cost of printers.

    • 3% of HP buyers knew the cost of ink.
    • Info. about the cost of ink delib. obfuscated. Presumably applies to cars also --- cost per mile?


  1. Ratings agencies started charging $ from investment banks for rating in 1970s. Pressure to give good ratings to customers otherwise no business.

  2. High ratings of mortgage backed securities caused people to get larger mortgages.

How to Prevent Phishing

  1. Consumer Reports: Objective info. on quality

  2. Better Business Bureaus

  3. Law:

    • Uniform Commercial Code
    • Courts
  4. Regulators

Misc. Quotes, Numbers, Points, and Anecdotes

  1. The Truth in Lending Act of 1968 mandated that merchants could not charge customers more if they paid by credit card than if they paid by cash. But that law expired in 1984, and Truth in Lending credit-card-style now has been reenacted, but in only ten states, with about 40 percent of the US population.

    An enterprising blogger, Sean Harper, a former student of Freakonomics’s Steven Levitt, has given us a third cut. He calculated the interchange fees that a merchant would pay if you handed her your Citicorp Visa Rewards Card.35 For a $1.50 pack of gum purchased at a convenience store, the fee was 40 cents; for a $30 tank of gas, $1.15; for a $100 grocery purchase, $2.05. Harper’s list goes on.

    As another gauge, with a 2 percent charge in the supermarket, the credit-card companies are taking almost one-fifth of the typical average markup on groceries.

  2. "Ten years ago deaths due to cardiac arrest were an especially serious problem in the casinos. The emergency crews could not get through. Finally, the casinos created their own specially trained defibrillation teams. One surveillance video shows why such special training was necessary. In the video, as a squad from the casino defibrillates the heart arrest of a fellow player, the surrounding players play on, their trance unperturbed, even though the victim is literally at their feet."

  3. By the time we are 60, more than 80 percent of us own our own home; and we will stay in those owned homes, on average, for a good long time. For current homeowners, their total stay in their homes, from the day they move in to the day they will move out, will, on average, be about twenty-four years.

  4. "In some 30 percent of home sales to new buyers, total—buyer plus seller—transaction costs, remarkably, are more than half of the down payment that the buyer puts into the deal."

  5. "[In Nevada,] the average adult spends 4 percent of income on gambling, nine times the US national average."

  6. "In its five-year career, from 1999 to 2004, Vioxx is estimated to have caused 26,000 to 56,000 cardiovascular deaths in the United States"

  7. "failure to notify women of suspicions about hormone replacement therapy, by doctors and Pharma, is estimated to have caused some 94,000 cases of breast cancer."

  8. "Proof" That We Are Phools

    Survey: Can you come up with $2k if an unexpected need arose in the next month? "Almost 50 percent of their respondents, in the United States, replied either that they could not, or they probably could not come up with the needed $2,000." (Lusardi, Schneider, Tufano)


    "in 2010 the median US working-age family held less than one month’s income in cash, or in checking, savings, or money-market accounts; in addition, but not surprisingly, the median direct holdings of stocks"


    "Some 30 percent of households say they have resorted to super-high-interest “alternative forms of borrowing” at least once over the past five years"


    "In 2009 a full 2.5 percent of householders reported they had gone bankrupt in the past two years (most of which had been pre-Crash)."


    "Matthew Desmond revealed similarly high statistics; the annual eviction rate from 2003 to 2007—a period totally before the financial crash—was 2.7 percent."

  9. The fact that people don't always make decisions that are best for themselves "... is so basic that it is critical to the first story of the Bible, where the serpent beguiles innocent Eve to make ..."

  10. Enron:

    "The “mark-to-market” accounting, whereby future expected profits from an investment could be booked when the investment was made. The more usual practice is to wait until the profits are actually realized."

    "From 1995 to 2000 Fortune named Enron the country's most innovative company."

    "Fortune was right; its editors just failed to understand the nature of the innovations."

  11. Keynes' predictions:

    "The workweek would fall to fifteen hours. Men and women alike, Keynes said, would “experience … a nervous breakdown of the sort which is already common in England and the United States amongst the wives of the well-to-do classes, unfortunate women, many of them, who have been deprived by their wealth of their traditional tasks and occupations—who cannot find it sufficiently amusing, when deprived of the spur of economic necessity, to cook and clean and mend, yet are quite unable to find anything more amusing."


    "We are five and a half times richer than we were back in 1930."..."Free market... also invented new 'needs'"

  12. "In the class of congressional retirees for 2010, a full 50 percent of senators and 42 percent of representatives became lobbyists"

  13. " During the Reagan administration the Food and Drug Administration threatened to require cranberry juice to be labeled as 75 percent water."

  14. "And we do not view it as just coincidence that the IRS is so underbudgeted that it fails to collect hundreds of billions of owed taxes (estimated by the IRS itself at $385 billion for 2006)."

  15. "overall there is one drug rep for every six physicians in the United States"

  16. One ratings agency alone, Moody’s, gave 45,000 mortgage-related securities triple-A rating (for the period 2000 to 2007)

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